Surveillance Mechanism at Stock Exchanges


It is rightly said that “Time is the king of everyone. And the advent wheel of time cannot be stop”. From a stage where a human being was having not able to have the desired products, services and goods, Globalization and Trade are the two pillars of the modern world, which have turn the table upside down. In the world of trade, stock exchange is the platform where all the corporations and the governments are bunch together to pave the way for the investors either to buy or sell equities. Share of stocks, bonds, financial instruments fall under the category of equities.

Stock Exchange

They are defined as the securities which can be sell or purchase by the traders and stockbrokers. Since, the coin has two sides and each of the side has its own importance. Similarly, exchange of stock lead to increase in the capital for the business. The company can increase their income by selling their shares to those people who are willing to buy them. Further, the venture amount plays a pivotal role in the startups of the firms. The Cash on Cash Return Policy which was introduced by the changes in Tax law in 1987 is filling the pockets of many businessmen and women. Not only this, people who are mobilizing their savings directly to the companies’ management boards are financing their organizations. Distribution channels are seen as good opportunities for the firms to uplift their gains. Apart from this, stock exchange boost the economy of the nation and open the gates for more stabilization.

The other side of Stock Exchange

While on other hand, various illegal, abusive and manipulative practices of trading are being adopted in the markets. Investment fraud, also known as Securities Fraud or Stock fraud involves those traders who sell or buy the stock on the basis of false information, which results into huge losses and violation of rules and regulations. In addition to this, dummy corporations are created by the fraud people which exist under the shadow of the real name, just to make illusion. In the technology field, internet is the main tool for these people where they run various schemes in the form of chat rooms, forums, spamming through emails and internet boards. Furthermore, within the corporation, the officers, trust worthy employees, directors and the ones who holding some share, like 10% or 20% or even more than that, known as insider,  find some ways to cheat. This is known as “Legal Insider Trading”. But “Illegal Insider Trading” includes where the information is collected or known during the duty of the insider.

Turning the back the page of history, in the year 2002, a wave was spread in the United States where the public of the nation became knowledgeable about the accounting scandals. Various measures were taken by the clients of the corporative for the prevention of publication of false financial reports. Sometimes, pressure is being created by the stock brokerages on the clients in the world of trade for using telesales for microcap fraud schemes. These pressure rooms are called as “Boiler rooms”. Some are licensed or non-licensed. Besides this, there are numerous laws which are made by the government and the international bodies, which took the shape of disadvantage for the customers. Market timing and late Trading are the perfect examples that can be used for the justification. Short selling which are abusive can turn down the prices of the stock. Some stocks are even sold without having any intention to borrow or being borrowed.

Surveillance Mechanism at Stock Exchanges

To prevent all these frauds in the world of stock exchange, “Surveillance” act as the protective shield against all the odds. It is used for the protection, investigation of the malpractices and preventing them for their existence in the market of trade. It helps to setup such a platform where the buyers come to buy the stocks and the sellers sell the equities, both (buyer and seller) with the confidence in fairness and transactions with accuracy. Orderly markets are established leading in the acceleration in the economic growth of the country. At the public as well as on the private sector surveillance can be generated to prevent stock exchange from the eye of frauds.

At private level, different organizations took out their own way for dealing with people or stockbrokers who are in the favor for committing illegal practices in the stock exchange. Market surveillance product such as SMARTS, which is offered by NASDAQ, Inc. assists on the individual exchanges and regulatory agencies, brokers in monitoring various activities of trade across the globe which have multiple markets and classes of asset. IN 2007, Chicago Board of trade created, Chicago Mercantile Exchange, commonly known as CME. It is body of organized exchange which deals with the trading options and futures. Adding to this, it is use for trading agricultural products, important metals, treasuries and bitcoin futures.In the field of software platforms and analytics such as IBM which acts as the third-party provider and (Surveillance Insight for Financial Services) and Thomson Reuters (Accelus Market Surveillance—now Connected Risk from Refinitiv) assisting in the customization and set-up of comprehensive surveillance capabilities.

Oversighting the government level, we have Securities and Exchange Commission’s (SEC) which  provide market surveillance on the large scale basis in order to help the uphold securities rules and regulations, to protect the investors against fraud committed by the insiders and the people outside the firm. Commodity Futures Trading Commission (CFTC), also provide surveillance but for specific segments of the market, like the future market. The National Futures Association (NFA) also conduct market surveillance.

In July 1995, Market Surveillance Division was set up in SEBI, with the objective to keep a sharp eye like an eagle on the surveillance activities of the stock exchanges. Its main motive is to look over the movement of markets, stocks and the trends. On a continuous basis, the Market Surveillance systems are developed and consolidated.

Investigations are done and carried out on the basis of evidences that are collected related to the illegal and manipulative measures taken on the platform of stock exchange. On completion of investigations and after following the procedure of enquiry proceedings in respect of intermediaries, i.e. stock brokers and sub-brokers, merchant bankers, registrars to an issue and share transfer agents and bankers to an issue, orders were passed for cancellation of registration in 4 cases, suspension in 30 cases, warning issued in 28 cases and refund of issue proceeds in one case.


In nutshell, various methods that are adopted by the people whether within the company or outside the firm in the field of stock exchange should be prevented for stepping inside the field of trade. Both government and private sector should create awareness about the frauds and cheats against stock exchange and the prevention tool, surveillance.


1) NSE, Surveillance Mechanism at Stock Exchanges,

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